Defining Wasteful Government Spending

In order to detect and eradicate wasteful government spending, we first have to identify and define just exactly what we consider to be "wasteful". But it probably depends on who you ask, and who benefits the most. Just as we've witnessed over the past few years: when a natural disaster hits one State, some members of Congress refused to vote for disaster relief without offsetting cuts; but when the wrath of God clobbered their State, those same members of Congress were the first ones standing in line for their government hand out.

Congress and this administration might think that spending billions of dollars on defense to protect trade routes from China (instead of just defending our shores) is considered acceptable government spending; whereas, Walmart might think that paying for food stamps for their under-paid employees would be considered "wasteful".

Is wasteful government spending the use of accounting gimmicks (like charging the government $600 for toilet seats) to fund an annual $52 billion "black budget" to finance our spy agencies? Or is it more wasteful to send billions of dollars in foreign military aide to countries that don't even need it (just to enrich the military contractors)? Wasn't the war in Iraq also "wasteful" --- especially in terms of human life? Or how about the defense contractors who offshore to countries like China to dodge payroll taxes, just to get bogus parts in return?

Is it less wasteful to use millions of dollars to fund lavish parties for the IRS (instead of investigating tax evasion)? Or is it more wasteful to use tax dollars to pay for the Social Security Administration's posh conventions (instead of processing disability claims)? What about all the swanky galas, such as the annual White House Correspondents Dinner --- where members of Congress, fashion models, media pundits and Hollywood celebrities gather to party?

Wouldn't paying members of Congress $174,000 a year (just to a work part-time job) be considered wasteful spending? After all, they're always on vacation and spend most of their time fundraising. Or is it only considered "wasteful government spending" when we feed a beach bum in California?

While most of us might agree that picking up a bar tap for a government function in Las Vegas might be considered wasteful spending (because we assume it is paid for from the general fund with federal income taxes), just as most of us would also agree that receiving Social Security and Medicare benefits when we get too old to work is NOT wasteful spending (because most of us will eventually need these benefits, and also because it's paid for by us through our payroll taxes.)

But then there are also those who might consider disability benefits wasteful (even though an illness or accident can happen to any one of us). And the same can be said for Medicaid or food stamps for the poor (even though hard times can also befall any one of us).

Or what about unemployment insurance benefits for those who were laid off from work? Would that be considered wasteful government spending? Many of us are still at risk of having our jobs offshored overseas, with the exception of fast-food workers or retail clerks (who may need Medicaid or food stamps, which are more like a substitute for "living" wages, and are in essence, subsidies for their employers.) That's why you should always avoid the self-check-out lines, because you could be laying off a cashier --- and they might end up working at McDonalds or Walmart (or remain unemployed) and be forced into using Medicaid, food stamps and unemployment benefits --- inducing more government spending.

But the myth of widespread fraud being perpetuated by the poor has mostly been pushed by the same people who also want to keep wages low, get rid of Social Security and Medicare and cut unemployment benefits for the jobless (although, getting old may not carry the same negative stigma as being poor, becoming disabled or losing a job).

From Antonio Fatás: Whenever you hear someone talk about “wasteful government spending”, demand that they be specific --- and in particular, that they explain wasteful relative to what. If we’re talking about current federal spending (outside defense, which isn’t part of this discussion) where is all this major waste?

From Paul Krugman: The federal government is basically an insurance company with an army, and the insurance side isn’t bad. Non-defense spending is dominated by Social Security, which is highly efficient; Medicare is more efficient than private insurance and Medicaid is much more cost-effective than private insurance. More broadly, the US spends twice as much on health care as other advanced countries, with no better results --- and that disparity is the result of private-sector, not public-sector, waste.

And we can also add "corporate greed" into the mix for the CEOs of pharmaceutical companies, medical providers and hospitals that our political leaders have enabled through loopholes in oversight and regulations (with the lack of civil and criminal enforcement of existing laws), "limited liability" clauses in corporate charters (not holding the wrong-doers personally accountable), our very skewed tax code (using tax laws and loopholes that mostly favors the ultra-wealthy --- such as the NFL and other professional sports organizations who pays no federal taxes and get taxpayer subsides to build their stadiums), and turning a blind eye to offshore banking, tax evasion and dummy corporations (by defunding or under-funding federal agencies that can properly oversee these nefarious and fraudulent activities).

From Antonio Fatás: We all have our list of anecdotes on how governments waste resources, building bridges to nowhere and how politicians are driven by their own interest, their ambitions or even worse, pure corruption. If only we could bring the private sector to manage these services!

There is something else that matters: we tend to use a framework that starts with the assumption that in the private sector competition will get rid of waste. An inefficient company will be driven out of business by an efficient one. An inefficient and corrupt manager will be replaced by one who can get the work done. And we believe that the same does not apply to governments

But is competition good enough to get rid of all the waste and inefficiencies in the private sector? I am not simply talking about large companies that abuse monopoly power, I am thinking of all the instances where the competitive threat is not enough to eliminate inefficiencies.

I think this applies to financial institutions: the financial crisis has undermined our perception that these institutions were acting in the benefit of their shareholders (even Alan Greenspan said so). Profits and rents going to that sector (and to a reduced group of individuals) did not seem justified by the value they added. Why don't we see entry of new banks? Why don't we see new entrants taking over this market, finding the necessary funding to build scale and attracting the depositors or investors of the current established institutions? Why don't we see new CEOs rising to the leadership of these institutions with a platform that promises to behave in a different way and possibly be much better at maximizing the creation of long-term value? It must be that competition is not strong enough.

If you look through non-defense discretionary spending you’ll find some waste, but no more than in any large organization. (Antonio Fatás didn't mention, there's also employee theft in the private sector.)

Regarding wasteful spending, Paul Krugman says some people might be talking about the stimulus spending, who make the case that the stimulus packages that began in 2009 --- which have consisted mainly of temporary tax cuts and transfer payments --- have significantly raised the public debt, while doing very little to solve the nation's long-term employment and growth problems (just as the bailouts just mostly benefited the big banks).

But Krugman also points out that, it’s hard to waste resources more thoroughly than by leaving them idle [such as the $2 trillion that corporations hold in profits in offshore banks]. He also says that hiring the unemployed and putting them to work doing something [such as repairing our infrastructure] is a huge improvement.

Developing countries, led by China, have devoted billions of dollars to the biggest dams, highways, railways, bridges, canals and energy projects. Increasingly, this group of rising economies have been building showcase projects that once were mainly the pride of the U.S., Western Europe and Japan.

China already has the world’s largest building (the New Century Global Center) and soon will have the world's tallest building. At 2,749 feet, Sky City in the southern Chinese city of Changshaset is to be completed in 2014. China's tallest skyscraper (Shanghai Tower) has just been topped out and will be completed in 2015. China also has the world's tallest dams and the world’s fastest bullet train (the Shanghai Maglev). China also has the world’s longest cable-stayed bridge (the Jiashao Bridge, which just recently opened.)

We Need Jobs, Wages and Taxes to Match Government Spending

Income redistribution: the offshoring of jobs and the trade deficit, low wages, an increased population, inflation and high unemployment all contribute to more government spending (and bailing out major corporations doesn't help either).

The skewed tax code contributes to a lack of revenues necessary to match the government spending. In the late 70's the capital gains tax rate was much higher than it is today (close to 40%). From there it gradually went down. Bill Clinton lowered them to 28%, then later to 20%. In 2003 George W. Bush lowered them again to 15%.

This past January the capital gains tax rate went up from 15% to 23.8% with the expiration of the Bush tax cuts --- including 3.8% that was added with the Affordable Care Act. This is one reason why the GOP is so adamant about repealing or defunding Obamacare (to protect the rich). And since the late 70's, the "effective" corporate tax rates (taxes on corporate profits, which is the engine that drives capital gains) are much lower too, bringing in less revenue as a percent of GDP to fund our government.

The government is also much bigger today than it was because in 1977 the population was 220 million, today it's 315 million. So because we have more people, we also have a bigger government. Which means we need more and better paying jobs for wage earners, so they can contribute more in tax revenues, as well as a change in the tax code so that those at the very top of the income scale also pay more (The problem with inequality is well known by now.)

Including those who are no longer being counted by the government, it's possible that more people are unemployed today than when the unemployment rate hit its peak in the Fall of 2009, when over 15 million people were once counted as unemployed. Currently only 11.3 million jobless Americans are counted as unemployed in the U-3 rate.

The American job market has been horrific since 2008. Currently the unemployment rate is decreasing, not because of new jobs, but due to people dropping out of the labor force. Payrolls are still two million jobs below December 2007 levels while the number of new people needing a job increases by at least 1.6 million every year. This is the real deficit Congress should be addressing, the jobs deficit.

And of those jobs that were created since 2008, how many were temporary or part-time and/or low-paying jobs? According to a recent analysis at the Federal Reserve Bank of Atlanta, low-wage jobs usually account for 40 to 50 percent of job gains during recoveries, but it's been much worse since the last recession.

According to a recent study by the Economic Policy Institute, between 2007 and 2012, real wages fell for most workers --- real hourly wages fell for 70 percent of the wage distribution, with larger losses for those holding lower-wage jobs. The economy’s growth rate has been less than half the rate of previous recoveries and the employment losses in the Great Recession were more than twice as large as those in previous recessions.

Also, according to any measure of economic logic, wage growth should reflect productivity growth. This was the case until the late 1970s. Manufacturing and unionization peaked in 1979, and offshoring began escalating. Since then, however, wage growth has fallen far short of productivity growth --- and that’s true for all workers, regardless of education, occupation, gender or race. A new study from the Center for Economic and Policy Research (CEPR) shows that the vast majority of U.S. workers would see further wage losses as a result of another pending "free trade agreement" (Trans-Pacific Partnership or TPP).

The wage distribution has become considerably more unequal over the last 30 years, with top earners capturing a large share of overall productivity gains. The real median earnings of full-time workers aged 25-64 have stagnated after peaking in the late 1970s.

The Politics

Thirty Years Late to a Class War: From the dramatic rise of food insecurity to the rapid decline of well-paid jobs, from the massive incarceration rate to the student debt crisis, economic and cultural tensions of our times are reaching a point of fracture. The passionate pursuit of deregulation, liberalization and privatization from both sides of the aisles of government and across the boardrooms of corporate America did not just create a cadre of Occupy activists, but a much deeper malaise and discontent across our nation that transcends age, race, class and political affiliation.

Paul Krugman notes that despite opposing political rivalries and strong partisan opposition, the United States government has continued to function, and that nobody had ever before considered the possibility that either party might try to achieve its agenda by bypassing the constitutional process, but instead, accomplish their desires through blackmail by threatening to bring down the federal government (and maybe the world economy) unless their demands were met. "True, there was the government shutdown of 1995," he writes," But this was widely recognized after the fact --- as both an outrage and a mistake."

Krugman: "How did we get here?" First came the southern strategy, in which the Republican elite cynically exploited racial backlash to promote economic goals, mainly low taxes for rich people and deregulation. Over time, this gradually morphed into what we might call the crazy strategy, in which the elite turned to exploiting the paranoia that has always been a factor in American politics to promote the same goals.

But now we’re in a third stage, where the elite has lost control of the Frankenstein-like monster it created. Now we get to witness the hilarious spectacle of Karl Rove pleading with Republicans to recognize the reality that Obamacare can’t be defunded. Why is this hilarious? Because Mr. Rove and his colleagues have spent decades trying to ensure that the Republican-base lives in an alternate reality defined by Rush Limbaugh and Fox News.

Exploiting the Paranoia
Promoting Fear

Of course, the coming political confrontations (raising the debt ceiling, defunding Obamacare, passing a budget and funding food stamps, etc.) are likely to cause even more damage to America as a whole. A pundit on Fox News recently said that "it's all just political drama that the people in Washington thrive on". But for many average Americans, it could mean the difference between life or death, or at the very least, their extended daily misery. 

The debt ceiling will be reached by Oct. 17th and Secretary Jack Lew said the Department of the Treasury will have less cash on hand than it previously estimated. U.S. Senator Dean Heller (R-NV) introduced his own bill No Budget, No Pay as an amendment requiring members of Congress to pass a final budget in order to receive pay (yeah, right).

From the Huffington Post: "House Republicans plan to demand major perks for coal companies and Wall Street banks, alongside healthcare and social service cuts, and a one-year delay in the implementation of Obamacare in exchange for raising the debt ceiling until the end of 2014. Coal and oil companies would benefit from provisions to expand offshore drilling and drilling on federal lands."

Much of our oil and natural gas will be exported to profit the energy executives. If the US had a glut of oil and gas reserves, wouldn't that drastically drive down the cost of domestic energy prices in the US if we didn't export? But if we continue to export America's natural resources (extracted with leases on federal lands), wouldn't that only enrich energy executives and the top 10% who own 80% of all the stocks?

Poverty Drives Government Spending

When using modern, sophisticated means to measure poverty (taking into account government programs such as food stamps, as well as unavoidable expenses like child care and out-of-pocket medical costs) the poverty rate has actually been higher over the last three years than the official statistics suggests (which the government currently reports as 15% of the US population). Without Social Security, disability benefits (SSDI), food stamps (SNAP), welfare (TANF), unemployment benefits (UI), and a host of other social programs (that a vast majority of Americans benefit from at one time or another), the poverty rate would be much higher. (In the debt debate, the GOP is pushing for chained-CPI to reduce Social Security benefits.)

From the Economic Policy Institute: Poverty rates in the United States increased over the 2000s, a trend exacerbated by the Great Recession and its aftermath. Despite the relatively high earnings at the very top of the U.S. income scale, inequality in the United States is so severe that low-earning U.S. workers are actually worse off than low-earning workers in all but seven peer countries. The United States ranks 12th out of the 19 peer countries. --- In comparison of poverty rates, the Economic Policy Institute examined the share of the population living below half the median household income in the United States and select OECD countries, a measure known as the relative poverty rate. The U.S. relative poverty rate was nearly three times higher than that of Denmark, which had the lowest rate and about 1.8 times higher than the peer country average. And while the overall relative poverty rate in the United States is higher than that of peer countries, the extent of child poverty is even more severe.

Conclusion

So whenever you hear someone talk about “wasteful government spending”, demand that they be specific. Do they mean the waste, fraud and abuse that goes on in the defense industry to further enrich military contractors? Do they mean the billions of dollars spent by the DOE on maintaining our nuclear arsenal? Or do they mean the modest Social Security incomes that the disabled and elderly receive?

When someone mentions "government waste", are they referring to the unemployment insurance that people receive after they've had their jobs offshored to China, India, Vietnam, Taiwan, South Korea, the Philippines and Mexico? According to a study by the Brookings Institute, the declining labor share is likely to continue because of offshoring. Another study from the Congressional Research Service shows that 29% of all current US jobs are still prone to offshoring.

Or when defining "wasteful spending", maybe some people might mean all those "bridges to nowhere" --- because every State has one in one form or another...like all those elaborate federal buildings and those posh congressional offices. Look at the huge boom in Washington DC that the taxpayers financed. Members of Congress are always clamoring to bring home the bacon (aka "pork") to their State. But shouldn't any cuts in government spending come from somewhere else, rather than from the modest allotment of food that we allow the poor to live on with food stamps?

One of the key dimensions of American Exceptionalism is the idea that America is "the land of opportunity" --- more so than any other country --- and that we care for our poor. But our ideology of being the "exceptional" land of opportunity may only be a hangover from a time when once it was really true. 

"If a free society cannot help the many who are poor, it cannot save the few who are rich." - John F. Kennedy

We can't expect the unemployed, the under-paid, single mothers, the disabled, and the elderly to start panhandling on street corners. If we define "wasteful government spending" as feeding the poor while giving tax breaks to the rich (who provide low-paid jobs to their employees), then what does that say about America?

Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!

 

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Comments

Considering this government, especially Congress

It would be better if they worked even less. Good God, this is so absurd. They try to pass a massive flooding of the U.S. with foreign labor under the guise of immigration reform, they try to starve America and they want to be such screw ups they risk America's credit rating.

Can you imagine if Congress "worked more" what most disasters would happen?

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The F-35 -- Wasteful Government Spending?

The F-35 is the most expensive weapon ever built. But according to a damning new article in Vanity Fair Magazine: It can't fly at night, can't fly in bad weather, and definitely cannot fight.
http://www.vanityfair.com/politics/2013/09/joint-strike-fighter-lockheed...

Sen. John McCain (who's usually only too happy to back bloated Pentagon spending) called out the F-35 program as "worse than a disgrace" and "still one of the great national scandals that we have ever had, as far as the expenditure of taxpayer's dollars are concerned."
http://www.dodbuzz.com/2013/09/19/mccain-f-35-among-the-great-national-s...

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Our Crumbling Infrastructure

The AP reports that at least 65,000 bridges in the US that are "structurally deficient" and over 20,000 more are "fracture critical," meaning that the failure of one component could lead to a collapse, as we saw in the I-5 bridge over the Skagit River in Washington state last spring. Worst of all, an appalling 7,795 bridges were found to be both “structurally deficient” and “fracture critical”—a combination that shows significant disrepair and risk of collapse. Simply put, critical infrastructure threatens the safety of Americans nationwide, but Republicans are more interested in keeping the Tea Party happy than they are in the basic governance required to address this crisis. A government shutdown is exactly the opposite of what we need right now. We need to fix American roads and bridges instead of shutting down our government.

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